EYE Business Looks Weaker

Advanced Medical Optics, Inc. (EYE) reported Q2 EPS that were lower than our estimate by $0.05 on revenue that exceeded our forecast. We lowered our FY08/FY09 EPS estimates. Due to the slowdown in the U.S. economy that is having a greater-than-expected negative impact on the elective refractive procedure market, the management lowered its FY08 EPS guidance.

This guidance includes plans to cut fixed costs primarily in manufacturing and SG&A operations to provide some support to earnings growth and maximize cash flow in a weak economy. Our price target is based on roughly 15x FY09 EPS estimate.
 
At its current price of $20.32 per share, AMO is trading at roughly 14x our 2009 earnings estimate of $1.46 per share and roughly a 0.7x P/E/G on 2009 EPS estimate, at a discount to the peer group P/E multiple of roughly 16x and at a discount to the group P/E/G of roughly 1.1x.

Growth in 2008 is expected to be negatively impacted by the May 25, 2007 recall of the COMPLETE multi-purpose solution and by an elective refractive procedure market that is weakening in the U.S due to the slowdown in the economy and reduced expected growth in U.S. refractive IOL sales.

In a declining market, AMO expects to continue to outperform the U.S. laser vision correction market with the support from multiple growth drivers. The continued success in the recovery of the eye care business from the launch of Complete Easy Rub provides additional support to the weaker growth. Given these factors we believe the stock is fairly valued around a 0.8x P/E/G on 2009 EPS estimate or roughly 15x our 2009 EPS estimate. Our price target moves to $22.

Read the full analyst report on EYE

Read the full analyst report on EYE